Roboadvice may bulldoze advisers

Advisers in New Zealand could lose out to international roboadvice giants if they do not keep up to speed with industry developments, it has been warned.

Thursday, February 5th 2015, 6:00AM 1 Comment

by Susan Edmunds

Financial adviser Robert Oddy said he had spoken to the Ministry of Business, Innovation and Employment about his concerns that regulation was “burying everyone back in the last century” and not taking note of changes that were occurring rapidly around the globe.

He said unless advisers took note of the changes, they were likely to be swept aside as investors bypassed local advisers in favour of big, web-based services from overseas in the same way that local retailers were losing business to international websites.

“There’s a need for advisers in New Zealand not to begin thinking their commission model may not be appropriate in terms of attracting new clients as the marketing capability of some of these giants, like Google, grows,” he said.

Advisers could find they were undercut in the same way sharebrokers had been challenged by low-fee online operators such as InteractiveBrokers.com.

“It’s important that the regulator looks at how they cope with that,” Oddy said. “Clients are resisting the increased workload they have to participate in and the increased costs and are trying to find a way to make sense of it all.”

New Zealand was at a disadvantage, he said, because of the cost of instigating a large-scale roboadvice model. “We don’t have the size to create the software easily … it’s potentially doable but we need someone with the pockets to stump up the initial money to develop it.”

He said roboadvice was likely to disrupt the sector. “We have to get on board or be left at the station.

FMA director of compliance Elaine Campbell agreed it was important the Financial Advisers Act considered the potential for other methods of advice delivery.

“The way the world is moving, people might potentially get advice through digital channels. We need to make sure the way we look at the Financial Advisers Act review futureproofs the way we look at advice in future and those business models. We need to imagine a world where personalised advice is provided through non-traditional channels, not the channels we envisage today.”

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Comments from our readers

On 5 February 2015 at 7:27 am Pragmatic said:

Broadly speaking there are two types of consumers: high touch & high tech – with the latter attracted by the price benefits of homogenous/automated/robo-advice. High touch consumers have demonstrated in mature financial services jurisdictions, their willingness to pay a premium for a clear value proposition.

In a jurisdiction such as NZ – where there is an absence of superannuation and tax complexity – the mainstay of the value proposition largely rests with the investment component. With the days of product sales, set-&-forget strategies, complacency well behind, industry participants must think clearly about how they will make a difference.

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